Genetic Testing and Kickbacks: Lessons for DME Suppliers

A shift in scams run by the types of bad actors involved in 2019’s $1.2 billion orthopedic brace fraud ring has new lessons HME providers should take a moment to understand.

The Department of Justice (“DOJ”) and Office of Inspector General (“OIG”) are targeting genetic testing labs (“GTLs”). By way of background, over the last five years the DME industry witnessed a group of lead generation companies (“LGCs”), DME suppliers, sham telehealth companies, and telehealth physicians “game the system” pertaining to off-the-shelf (“OTS”) orthotics—mostly, back braces. Operation Brace Yourself has pretty much shut down this fraud.

The LGCs and sham telehealth companies have reacted by moving into a new scheme: genetic testing. Rather than waiting five years to shut down the genetic testing schemes, the government is aggressively going after the players now. The enforcement actions against these schemes provide valuable lessons for DME suppliers.

An Oct. 9, 2019 DOJ press release states, in part: 

The Justice Department announced today that UTC Laboratories Inc. (RenRX) has agreed to pay $41.6 million, and its three principals, Tarun Jolly M.D., Patrick Ridgeway, and Barry Griffith, have agreed to pay $1 million to resolve allegations that they violated the False Claims Act by paying kickbacks in exchange for laboratory referrals for pharmacogenetic testing and for furnishing and billing for tests that were not medically necessary…The government alleged that between 2013 and 2017, UTC and its principals offered and paid remuneration to physicians to induce the ordering of pharmacogenetic tests, purportedly in return for their participation in a clinical trial… The government also alleged that UTC and its principals offered and paid remuneration, including sales commissions, to entities and individuals as part of the scheme…The settlement…resolves allegations in six lawsuits…filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The Act also allows the government to intervene and take over the action, as it did in these cases. The whistleblower shares to be awarded have not yet been determined … .

DME suppliers can derive six important lessons from this:

  • A Kickback Results in a False Claim - Most DME suppliers understand that if they bill for a product not delivered—or deliver one type of product and deliver another type of product—then a “false claim” arises. Equally as important, however, is that if a supplier is engaged in a kickback arrangement, then claims that ultimately arise out of that arrangement are also “false claims.”
  • Large Claims Submissions Invite Scrutiny - Government health care programs and commercial insurers (collectively referred to as “Third Party Payors” or “TPPs”) have edits in place that spot claims submissions that are “out of the ordinary.” Examples are:
    • A DME supplier has a history of submitting claims (i) at a historically established dollar level and (ii) for particular products. But then the TPP notices a spike in the dollar amount of claims submissions for a particular product.
    • A supplier submits a noticeably greater number of claims for a particular product category than other suppliers.
  • Every Employee is a Potential Whistleblower - If a DME supplier is doing something it should not be doing, then someone knows about it. That “someone” is usually an employee. Virtually all employees are aware of whistleblower lawsuits. If an employee witnesses fraudulent actions by his/her employer, then the employee may be motivated to gather information and then hire an attorney who specializes in filing whistleblower lawsuits. The lawsuit will be in the name of the employee and also in the name of the United States. The lawsuit will be filed in federal court and it will “go under seal.”

    This means that no one knows about the lawsuit except for the government. A civil Assistant U.S. Attorney (“AUSA”) will review the lawsuit and will likely appoint agents to investigate the allegations set out in the lawsuit. This investigation may take six to 12 months. After the investigation is completed, or even if it is still ongoing, if the AUSA concludes that the whistleblower lawsuit has merit, then the DOJ will “intervene.” This means that the DOJ will take over prosecuting the lawsuit and the employee (and his/her attorney) can pretty much “sit on the sidelines.”

    It is at this time that the lawsuit is unsealed and is served on the employer. The lawsuit is based on violation of the federal False Claims Act (“FCA”). Normally, whistleblower lawsuits are settled, with the whistleblower (“relator”) receiving 15 percent to 20 percent of the settlement proceeds. If the civil AUSA concludes that the facts indicate that a crime was committed, then the civil AUSA will hand the file over to a criminal AUSA to determine if, in addition to the civil allegations set out in the whistleblower lawsuit, the DOJ wants to bring criminal charges against the employer. 
  • Avoid Sham Clinical Trials - “If it looks like a duck, sounds like a duck, and walks like a duck, then it is a duck.” This phrase applies to fraudulent arrangements. At the end of the day, a DME supplier cannot hide fraud. The supplier may attempt to disguise the fraud, but eventually the existence of fraud will come out. This is true with sham clinical trials. A legitimate clinical trial can be one that is (i) connected to a hospital, (ii) connected to a medical school, and/or (iii) overseen by an Institutional Review Board (“IRB”). A sham clinical trial is one that is merely a subterfuge designed to funnel money to referring physicians. 
  • 1099 Independent Contractor Marketing Reps - The federal anti-kickback statute (“AKS”) prohibits a DME supplier from giving anything of value (e.g., commissions) to persons/entities in exchange for (i) referring patients covered by a federal health care program (“FHCP”), (ii) arranging for the referral of FHCP patients, or (iii) recommending the purchase of a product or service covered by an FHCP. If a supplier pays commissions to 1099 independent contractor marketing reps for generating FHCP patients, then the AKS is likely violated. The safest course of action is for marketing reps to be bona fide employees of the supplier. A supplier can pay to a W2 employee marketing rep (i) a base salary plus (ii) discretionary bonuses based on a number of factors, including generation of business.
  • Products and Services That Are Not Medically Necessary - Let’s talk about back braces. For decades, Medicare beneficiaries got along just fine without back braces. And then beginning about five years ago, a huge number of beneficiaries received back braces. Was this spike in demand driven by the medical needs of the beneficiaries—or was this spike driven by LGCs, the DME suppliers that paid the LGCs, sham telehealth companies, and telehealth physicians? The answer is obvious.

    The same is true with genetic testing. Is the spike in claim submissions for genetic testing driven by the medical needs of the beneficiaries—or by the LGCs, the labs that pay the LGCs, sham telehealth companies, and telehealth physicians? Again, the answer is obvious. And so if a DME supplier finds itself submitting a large number of claims for products and/or services that were not used very much in the past, then the supplier will find itself in the government’s crosshairs. 

About the Author

Jeffrey S. Baird, Esq., is Chairman of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas. He represents HME companies, pharmacies, infusion companies, manufacturers and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or

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